State fights for $6.7M in tobacco money

The attorney general claims tobacco firms unfairly withheld funds

The state went to court yesterday to head off the threat of losing $6.7 million in settlement money from tobacco companies this year.

The complaint filed by state Attorney General Mark Bennett asked for a declaratory judgment affirming that the state has diligently enforced the law controlling tobacco sales.

Major domestic cigarette manufacturers have made annual payments to 46 states since the Tobacco Master Settlement Agreement was reached in 1998. This year, some companies withheld part of their agreed payments, according to the complaint. The money, set aside in a disputed payments account, could mean a shortfall of $1.1 billion to participating states.

The companies could reduce payments if they lose significant market share to nonparticipating cigarette makers, according to the agreement.

"But if the state is diligently enforcing the model statute, that reduction will not take place," said attorney Jeffrey Ono, whose firm represents the state. "The withholding is nationwide. We are not about to sit back and wait. There is no question that Hawaii has diligently enforced the law."

The model law, which Hawaii and other states enacted as part of the settlement, requires states to collect fees from the nonparticipating tobacco companies as their share of tobacco-related health care costs.

Nonparticipating companies, all foreign, sell less than 1 percent of cigarettes sold in Hawaii, according to the suit. The state sued seven of those firms, and 11 firms placed $55,933 in escrow for the calendar year 2003.

The money being withheld by manufacturers is "adjustments" to payments made for the 2003 calendar year. The funds are paid into an account, and payments are made by an independent auditor. The settlement was originally estimated to total $200 million, with Hawaii's share about $1.3 billion.

State lawmakers earmarked one-quarter of the annual payment for the Emergency Budget Reserve (rainy day) Fund and 28 percent for service fees on the $150 million bond floated to build the new University of Hawaii School of Medicine. The rest goes for health and human resources programs run by the state and private agencies.